SUMMARY of
August 11, 1998 Technical Meeting

BPA Rates Hearing Room

A. Introduction

About 15 people attended the technical meeting on the Slice of the System Proposal. Kristi Wallis (Facilitator) welcomed the participants and stated that the purpose of the meeting was to begin a walk through the technical issues identified in the large public meetings and in discussions with customers and others. Phil Mesa (BPA) will present an initial study of impacts of the Slice proposal and try to come to an agreement on the approach and assumptions to be used for further studies.

B. Slice Proposal Evaluation

Phil Mesa reviewed the study he and others completed to identify financial impacts. (See Handout No. 1.) The challenge of the study was to determine how the Slice customers would operate their Slice purchase and what to compare that against to measure the relative impacts. BPA used the 50-year hydro regulation model to evaluate the effect of Slice on a macro level. The analysis uses the 50-year study run for the Rate Case. A group of customers were combined to form "The Slicers." Mesa used the Slicers' net requirement (firm load minus declared resources) forecasted for 2001 to determine how much of the Federal Columbia River Power System (FCRPS) was to be sliced. This net requirement was also used in the without-Slice case, assuming they were served by a traditional PF product. Mesa assumed that the Slicers would maximize the economic value of their power by minimizing their Slice take from BPA when market prices are weak and maximizing when the market is good, but that the FCRPS operation would not change.

To determine when the Slice customers would maximize or minimize their take, BPA divided the year into three seasons:

Fish operation season - April-August (no flexibility)

Fall-Winter season - September-December

Winter-Spring season - January-March

For each season with flexibility the market price for power was compared against the 50-year average market prices for the remaining periods. If greater, Mesa assumed that the Slice customers would take the maximum delivery. If not, the Slice customers would take the minimum delivery (stored for later). Since the majority of non-power requirements are included in the model, the model results show the effective limits that the Slicers would be subject to. Mesa stated BPA's concern that when BPA operates the FCRPS, it may hold additional water to make sure there is water for fish constraints. This additional limitation may not be applicable to the Slicers and potential conflicts exist. Dennis Parrish (Seattle) suggested that the Slicers have the same interest to meet load as BPA and live within constraints also. The assumptions should be the same. Wallis suggested the proposal is to serve load and that should be assumed. Lon Peters (PGP) agreed the objective functions need not be different.

Mesa reviewed the market price forecast used in the study. The market prices used are the same used to determine fish costs. The prices are a function of the regional load/resource balance and are the incremental costs of the last resource to serve load. The model uses the forecasted market price to see what the change in purchase cost or secondary revenues would be.

In the analysis the Slice percentage of the system is 16.2 percent. This percentage was used to determine what Slicers would receive on Heavy Load Hours (HLH) and Light Load Hours (LLH). This was compared against the non-Slice case, which assumed that customers were meeting their net requirement in the same shape as they are taking power now.

Mesa reviewed the financial impacts on pages 4-5. Impacts are separated into fixed impacts (that are independent of water condition) and variable impacts (that are dependent on water condition). Fixed revenue impacts come from changes between a Slice payment and PF revenues. Variable revenue impacts are market, opportunity sales type impacts. Expenses referred to on page 4 are from a previously used budget handout.

Participants suggested that the PF rate and demand charge used needed to be adjusted. They suggested making them consistent with the costs used to determine the Slice payment. Bill Doubleday (BPA) will change the rates model to address this problem. Participants also suggested using prices from Aurora (medium case), a matrix developed with the Northwest Power Planning Council that is publicly available. BPA will use these prices. Jeff Nelson (Springfield) suggested that extreme weather conditions need to be factored into the analysis. Mesa stated this would complicate the analysis and would not be possible given the time left. After discussion of whether the numbers used for loads were correct, the customers agreed to supply their forecasted load to Mesa before the next meeting. They will bring in three cases: flat; 2/3 HLH, and 1/3 HLH by period for 2000-01. Nelson also suggested that if revenue impacts are analyzed for Slice, then BPA should analyze the impacts for all other products.

Jonah Tsui (PRM) presented a case that Slice does not create cost shifts based on a simplified model. Parrish concluded that any cost shift is a product of rate setting and will occur regardless of Slice. If BPA is cost-based, then the issue is price equity for benefits received. Wallis suggested if some people are paying more or less of their costs for products now, then there might be cost shifts. Or if BPA is not cost-based (if BPA is building up financial reserves, for example), then there is a disconnect. Peters said if we assume all secondary energy is sold at market, then there will be a new 7(k) hearing at FERC if someone challenges the new rate schedule. This will be noted as a concern to consider. Merrill Schultz (PGP) wondered if more analysis would persuade those who have concerns about this proposal. He is not sure analysis is needed. Mesa had a concern about how benefits of the system are distributed to all customers. PGP representatives feel that the Slice eliminates the risk of setting rates and losing as the market changes. They feel it guarantees revenues for BPA. Wallis suggested that the discussion was into policy issues that would be discussed in other meetings.

At the request of the group, Mesa will check and see if the model can be distributed to participants. Don Long (Grant) suggested that the model assume BPA and the Slicers would use the system the same way. Wallis suggested the group come back to this concern at a later meeting.

C. Next Steps

The group scheduled a conference call for Friday, August 14 at 10:00 a.m. to continue the discussion and for customers to give BPA the load information for the model.

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